Daishin Securities announced on August 11 that it has raised its target price for Lotte Rental from 46,000 won to 53,000 won, an increase of 15.2%. The firm cited expectations for improved profitability due to an expanded market share in the rental business and a higher proportion of used car rentals, as well as potential business synergies from a change in the major shareholder. The investment recommendation remains a 'buy.'
Park Kang-ho, a researcher at Daishin Securities, stated, "Profitability is improving due to increased market share and the growing proportion of used car rentals in both the short- and long-term rental markets. We believe the likelihood of a change in the major shareholder has increased due to the recognition of the value of a differentiated mobility portfolio."
Lotte Rental reported second-quarter revenues of 765.7 billion won, a 2.3% increase from the same period last year, while operating profit rose by 9.6% to 84.6 billion won. Although the operating profit slightly fell short of the market expectation of 86.8 billion won, it was analyzed to have increased by 11.7% year-on-year when excluding a one-time cost of 1.7 billion won due to changes in accounting practices. Notably, the operating profit from the rental segment is estimated to have increased by 32.9% to 58.2 billion won.
The analysis indicates that the improvement in profitability is driven by an expanded market share in the domestic rental market and an increased proportion of used car rentals. Daishin Securities forecasts that Lotte Rental's operating profit margin will improve by 0.8 percentage points to 11.5% this year, with revenues and operating profits expected to rise by 5.5% and 13%, respectively, to 3.08 trillion won and 352.9 billion won.
The potential change in the major shareholder is also seen as a factor for reevaluating the stock price. The global private equity firm Texas Pacific Group (TPG) is pursuing the acquisition of a 61.18% stake in Lotte Rental held by the Lotte Group. Given that TPG is the second-largest shareholder of Kakao Mobility, there is an expectation for additional growth through business synergies between rental and mobility platforms.
Park added, "Lotte Rental has a comprehensive solution portfolio that encompasses rental, maintenance, care, used car rentals and sales, and overseas market entry. The valuation is attractive with a price-to-earnings ratio (PER) of 8.8 times and a price-to-book ratio (PBR) of 0.9 times based on 2027 earnings."
* This article has been translated by AI.
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